All Forum Posts by: Mike St. Jean

@Mike St. Jean Yes absolutely you can use an LLC in future deals. The problem isn't using an LLC but it is transferring an property already in your name to an LLC that can cause issue. I always use LLCs to hold property. I don't know any lawyers that don't use LLCs to hold their properties.

I think @Stuart Udis gives a great perspective above. 

     "Or would you still recommend leaning on using liability coverage?"

If you think I am implying it is good to hold in your own name and just have good insurance that is NOT my opinion. An LLC with good insurance may be a "Belt and Suspenders " approach ( meaning more than one needs) It is my choice and the choice of every attorney I know.

Owning property in your own name is a legitimate choice has it's advantages and other like @Chris Seveney believe that is the way to go

@Mike St. Jean As others have noted there will be a due on sale clause. There's a lot of posts like yours from investors wanting the benefits of FHA leverage with "protection" of an LLC. Here's the truth: As an owner of an FHA property, if you are going to become involved in a dispute it will be a premises liability, landlord/tenant or payment/perfromance. Maintain your property and eliminate premises liability hazzards, treat your tenants professionally (maintain your property applies here as well), pay your bills and use licensed/insured vendors where you are listed as additional insured. Do these things consistently and you will be far better protected than any LLC. Also, I am sorry to say but the Wyoming holding company is a total waste of money. Go back and ask whomever sold you that strategy to explain the circumstance where WY law will apply. Plus the anonymity argument is a total farce. The property is in your name and even if it was in an LLC's name your name will still be on the publicy recorded mortgage signature line. Also if you think "anonymity" is going to stop a lawsuit, think again. Plaintiff's attorneys don't care who you are before filing a claim, particularly premises liabilty claims which are the most common. I just wish more investors in your shoes understood the truth before shelling out money unececessarily.

First thing I’d ask is: What did your purchase contract say about the type of deed? If it called for a warranty or grant deed and you received a quitclaim instead, that’s a potential issue.

Second, did you get title insurance? If so, review the policy to see what coverage you have — it’s your first layer of protection if anything was missed or misrepresented.

A quitclaim deed doesn’t necessarily mean there’s a problem, but it does mean the seller isn’t warranting clear title. That can create risks, especially when you go to refinance or sell. Before moving forward with permits or construction, I’d have a title company or another real estate attorney review everything to make sure you're not exposed to surprises.

@Mike St. Jean what did your contract say? it should specify they type of deed. Did you get title insurance. A perfectly valid and legal quit claim deed can convey zero interest in a property. I doubt this is the case but it is possible you were scammed. 

Again, go back to the contract what did it say?

Hello Mike,

I hope you're doing well. Generally, a Quitclaim Deed is a valid deed for transferring ownership interest. However, it is often considered the weakest kind of deed as it transfers essentially whatever interest the previous owner had in the property, with any and all encumbrances, liens, judgments, and issues that may affect the title. It could be very well likely that the previous Seller had only received a Quitclaim Deed and that is the only type of deed they had to transfer over and were not able to make any warranties to amount to a General Warranty Deed or a Special Warranty Deed, or they may have encumbered the property while owning it and had issues over the title and consequently were only able to transfer over a Quitclaim Deed.

Overall, there could be no issues with the property as you received the exact deed the seller had previously or there could be other encumbrances that are or are not listed on the county records.

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

@Mike St. Jean There is nothing wrong with a Nevada or Wyoming LLC setup, but the need and advantages are way oversold. Most if not all states require you to register your out of state company anyway so many of the advantages go away with the in state registration.

@Patrick Roberts gives an example of why i said "Buying in your name and then moving it to an LLC is generally not a very good idea." Whether this is a potential risk would depend on the state and particular case law.

Another thing on this - how long has it been since you got this loan? Your post makes it seem like the assignment of the mortgage will be in the future. If you just recently obtained this loan, you really dont want to use this as investment property until you've lived in it as your primary residence for a while. Also, since this is an FHA loan, there is 100% a due on sale clause.

As others have mentioned, the legal advice I have received is that having the note/mortgage individually but having the property owned by the LLC creates a potential pathway to pierce the corporate veil in a suit. This is specific to my situation, so your situation may be different. Probably worth asking an attorney before you go through all of this trouble, though.

If they require sprinklers, it will never be worth the conversion on that small scale (especially displacing the tenants). If you are converting the basement unit, the egress is usually the issue, not sprinklers. Is there already a bathroom in the basement or no? Your second best bet is to renovate the basement and offer it to the first-floor tenant, unless there is back stair access, for more rent. Going from 2 to 3 is hard in most states. Where I am, it changes the game on egress, fire escapes, back stairs, and a green card from the state.

@Mike St. Jean The issue is not just the type of deed. Your title insurance goes away if you transfer it without a new title search and title policy. 

Due on sale is a possible issue. Get good local legal advice on that. But don't listen to the national lawyer gurus. You've already been sold a bill of goods by setting up a Wyoming LLC

Buying in your name and then moving it to an LLC is generally not a very good idea.